The idea of a perfect credit score is not a luxury that most of us can afford. Due to one reason or the other and owing to the fact we are not equal when it comes to financial might, getting access to credit facilities can at times prove a tad difficult. No doubt, lenders in the contemporary society insist on a good credit score before one can be considered for a loan. In as much as this has been a thorn in the flesh for those with a poor credit rating, the introduction and subsequent popularity of logbook loans has indeed given UK individuals with a poor credit rating a new lease of life.

Simply put, with logbook loans, one’s credit rating does not play any role in the decision to get approved or rejected for a loan. So long as you legally own a car and are willing to transfer ownership of the same to the lender for the duration of the loan, you can get access to an affordable logbook loan without having to worry about the state of your credit rating. That said, what are the eligibility requirements for a logbook loan?

Before you apply for a logbook loan, there are a number of requirements you need to meet. First and foremost, you need to be a citizen of the UK. You must be residing within the UK and be over the age of 18 years. This is very important as you cannot enter into contractual agreements under the UK laws unless you are an adult of 18 years. You also need to be the legal owner of the car you intend to set up as collateral. In other words, you can’t use a friends, colleagues, spouses or siblings car and use it as collateral for your logbook loan.

In addition to the aforementioned basic requirements, there are also other things you have to observe. For instance, the car you set up as collateral need not to have been on the road for more than a decade. It needs to have comprehensive insurance and be in good condition. Another condition that most logbook loan lenders insist on is that the car should be free of any financial attachment. However, if yours has finance attached to it, you need not worry as there are a number of logbook loan options that allow financing especially if the finance attached to the car is not that substantial.

As regards transfer of ownership, the lender will hold onto your car logbook but you still get to use your car while repaying the loan. Of course, the benefits of logbook loans are the reason they have become quite popular over the years. The idea of no credit checks, ability to rebuild credit report and get access to a loan even though one has a history of arrears is one of the reasons its popularity is not about to wane soon. However, the downside to logbook loans is the aspect of high interest rates not to mention the risk of car repossession should the borrower be unable to service the loan.

If you are thinking of taking out an unsecured loan, you probably have heard that the single most irresistible aspect of this type of loan is the idea of no risk to the borrower. Apparently, this misconception has been around for quite a long time that it has been taken as gospel truth by individuals who are by all means clueless of the reality on the ground. No doubt, unsecured loans are advertised and popularised on the premise that there is no risk to the borrower. To some extent, that might be the case but to unilaterally believe this misconception is to lie to ourselves.

Before we get to analysing whether the “no risk to the borrower” is a truth or myth, it is imperative that we look at the reasons as to why many people blindly believe this myth. One reason why many people believe this myth is because of insufficient understanding of credit laws. Secondly, there is also skewed belief that so long as an asset is not attached to a loan, the same cannot be sold off or attached to recoup the loan. Last but not least, the concept of collateral and the belief that since none is attached to the loan, the risk is zero. That notwithstanding, there is also the general belief that lenders have few legal methods when it comes to unsecured loans and therefore borrowers feel (incorrectly so), that they can default on unsecured loans and go scot free. That of course is wishful thinking as there are indeed a number of legal methods that lenders can use to persuade a defaulter pay up or recoup their money. These are:-

Lawsuits

Garnishment of wages

Court order to sale property of borrower to recoup money lent

In regard to the above, we can comfortably state that there is no such thing as no risk to the borrower. In any case, defaulting on unsecured loans have a number of risks to the borrower. The most obvious is of course the fact that your credit score will suffer a beating. Defaults mean that your credit score will worsen and as a result dent your chances of getting access to credit in the future.

Default also means that you will have to contend with higher premiums in the future, find it difficult getting an apartment, securing employment and also the amount you pay as down payment will also be on the higher side. Last but not least, the blot of default will remain in your credit report for a period not exceeding 7 years and there is no denying that this is something you do not wish to see happening.

That said, what is the truth about unsecured loans?

It is correct to say that the idea of no risk to the borrower is nothing more than a misconception, a myth of sorts. The truth of the matter is that there is some form of risk to the borrower. Legal action might actually take longer where unsecured loans are concerned but the truth of the matter is that the option is available. Do not therefore take out an unsecured loan under the guise that should you default, you will go scot free.

If you are seeking to inject more capital into your business, start one from scratch or simply buy furniture and fixtings for your business, you probably have contemplated securing some form of financing from a lender. If you are seeking for a business loan for whatever reason, there are two options you have at your disposal. You can go for a secured or unsecured type of loan. Generally, a secured loan is backed by some form of security/collateral while an unsecured one does not require you to have any security prior to approval. That said, the basis of this article is to look at unsecured loans as well as outline their merits and demerits.

An overview of unsecured loans

The undeniable fact is that the plethora of lenders offering unsecured form of credit won’t ask you for collateral prior to approval. However, to qualify, they insist that you need to meet credit as well as income requirements. The amount of money an individual can avail under an unsecured loan is dependent on their credit rating or even the size of their business.

Merits of unsecured loans

There is no risk to your personal or business property

The beauty of unsecured loans has to do with the fact that there is no risk to your personal or business property in the event that you default. In other words, you also don’t need to have collateral to avail this type of loan.

Simpler application process

Owing to the fact that there are many lenders other than banks that offer unsecured loans, the application process for unsecured loans is quite simple. In fact, it is possible for you to get an unsecured loan from a peer to peer lender online from the comfort of your office or even home without an inch. In most cases, qualifying for an unsecured loan is dependent on how much income you receive on a monthly basis as well as on your credit rating.

Bankruptcy relief

In the case your business files for bankruptcy, it is important to note that a law court might actually discharge unsecured loans but the same cannot be said of secured loans.

Demerits of unsecured loans

Default could lead to worsening of your credit score

The fact that there is no collateral to lose does not mean that if you default on an unsecured loan you go scot free. The truth of the matter is that the lender might actually come after you and even place lien on your property. Additionally, defaults could mean further worsening of your credit score which essentially means that your chances of availing credit in the future is greatly diminished.

If you are looking for a huge loan, you will not get it under an unsecured loan. Due to the high risk as a result of lack of collateral, lenders are unwilling to extend huge amounts of money because they stand to lose a lot in the event of a default.

In conclusion, there is no denying that unsecured loans have both merits and demerits. It’s incumbent upon you to weigh the pros and cons and make an informed decision prior to applying for one.

Literally speaking, when a person is seeking for credit, he/she have an option of whether to go for secured debt or unsecured debt. When we talk about unsecured loans, we are essentially looking at a form of credit where the lender does not ask for any tangible asset from the borrower as security but rather advances credit on the promise that they will pay. Examples of unsecured loans are personal loans and credit cards. On the other hand, secured loans which form the subject of our article refer to a loan where the lender (in this case mostly a bank) require the borrower to have some form of tangible asset that the financial institution can hold in lieu as the borrower repays the loan.

In order to avail a secured loan, you need to set up any of your valuable assets as collateral. This serves to reduce risk on the part of the lender and simply means that in the unlikely event that the borrower is unable repay their loan, they can always have something to fall back on and therefore it is a less risky form of lending to the lender. That said, what are some of the features of secured loans?

Collateral

As stated above, what differentiates secured loans from unsecured loans is the aspect of collateral. In other words, you cannot be considered for a mortgage or a huge business loan if you don’t have collateral. All secured loans must be backed by some of tangible assets before the lender can extend credit.

Period

The second outstanding feature of secured loans has to do with the period of repayment. Secured loans are generally long term loans that can be repaid anywhere between 5 and 30 years. A good example is a mortgage loan that can be repaid for up to 30 years. The same cannot be said of unsecured loans that are generally short term and repaid within a year.

Less risky

There is no denying that secured loans are less risky to the lender compared to unsecured loans. The aspect of security simply means that lenders have something fall back on and recoup their money should the borrower be unable to meet their end part of the bargain.

Now that we’ve taken a look at the core features of secured loans, lets shed light on why this type of loans are popular with individuals in the UK. First and foremost, it is imperative to note that secured loans are easy to obtain even for individuals with a less than average credit score. One simply needs to have collateral!

Secondly, the interest rates for secured loans tend to be slightly affordable or rather lower compared to unsecured loans. This again is influenced by the reduction in risk as a result of collateral.

Third and the most important benefit is the fact that secured loans offer individuals whose credit scores is in tatters an opportunity to repair it especially if they make repayments without any problems.

In light of the aforementioned, there is every reason as to why you should go for a secured loan. The benefits indeed far outweigh the demerits so to speak!